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Purchasing

Purchasing. Steps in the Purchasing Process. Accurate description of desired commodity or service Selection of possible sources of supply Determination of price and terms Preparation of purchase order Follow-up or expediting Receipt and inspection of goods Clearing the invoice and payment

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Purchasing

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  1. Purchasing MGT 575 Summer 2008

  2. Steps in the Purchasing Process • Accurate description of desired commodity or service • Selection of possible sources of supply • Determination of price and terms • Preparation of purchase order • Follow-up or expediting • Receipt and inspection of goods • Clearing the invoice and payment • Maintenance of records Source: Leenders & Fearon MGT 575 Summer 2008

  3. Description of Product or Service • Description by brand • “or equal” • Description by specification • Specification by physical or chemical characteristics • Specification by material & method of manufacture • Specification by performance or function • Description by engineering drawing Source: Leenders & Fearon MGT 575 Summer 2008

  4. Determination of Price and Terms • Use of quotations and competitive bidding • Firm bidding • Determination of most advantageous bid • Collusive bidding • The problem of identical prices • Negotiation • Provision for price changes • Discounts • Contract cancellation MGT 575 Summer 2008 Source: Leenders & Fearon

  5. Negotiation as a Method of Price Determination • Framework for planning and preparing for negotiation • Ground rules for successful negotiation MGT 575 Summer 2008

  6. Best Buy The best buy is the best combination of technical and procurement factors. • Procurement Factors • Price • Delivery • Lead time • Technical Factors • Useful life • Materials of construction • Design Source: Leenders & Fearon MGT 575 Summer 2008

  7. Stockless Purchasing or Systems Contracting MGT 575 Summer 2008

  8. Legal Aspects of Purchasing Four Factors of a Valid Contract • Competent parties • Legal subject matter or purpose • An offer and an acceptance • Consideration MGT 575 Summer 2008

  9. Legal Aspects of Purchasing Warranties • Express warranty • Implied warranty of merchantability • Implied warranty of fitness for a particular purpose • Warranty of title MGT 575 Summer 2008

  10. Acquisition of Capital Assets • Life Cycle Costing (LCC) or Total Cost of Ownership (TCO) • Procurement of used equipment • Lease vs buy • The acquisition of construction Source: Leenders & Fearon MGT 575 Summer 2008

  11. Acquisition of Services • Value of the service • Degree of repetitiveness • Degree of tangibility • Direction of the service • Production of the service • Nature of the demand • Nature of the service delivery • Degree of standardization • Skills required for the service Source: Leenders & Fearon MGT 575 Summer 2008

  12. The Purchase Agreement for Services Short term/Long term Standard/Custom contract • Fixed price • Unit price • Cost plus % fee • Cost plus fixed fee • Incentive MGT 575 Summer 2008

  13. Service Contract Administration • Follow-Up • Postservice Quality Control and Supplier • Evaluation • Payment • Records and Other Aspects of Contract • Administration MGT 575 Summer 2008

  14. Opportunities for Joint Purchasing MGT 575 Summer 2008

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